Life-long Income Tax Obligations of US Citizens Living Abroad?

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spicard29

New Member
Hi,

I just applied and sent in my application fee a few weeks ago, but stumbled across this tidbit today:

"If a permanent resident leaves the country and stops being a US resident for tax purposes, she doesn’t need to pay any US taxes at all. A US citizen, by contrast, needs to pay US taxes on her global income for her entire life, no matter where she lives."

This was on someone's blog, so I'm not sure it's a true statement. I REALLY hope it's not true, actually. If it is, I just wasted $675. Who would naturalize under those circumstances? Is a US Citizen living outside the US (long term) required to pay US income taxes on income earned in OTHER countries?
 
spicard29 said:
Hi,

I just applied and sent in my application fee a few weeks ago, but stumbled across this tidbit today:

"If a permanent resident leaves the country and stops being a US resident for tax purposes, she doesn’t need to pay any US taxes at all. A US citizen, by contrast, needs to pay US taxes on her global income for her entire life, no matter where she lives."

This was on someone's blog, so I'm not sure it's a true statement. I REALLY hope it's not true, actually. If it is, I just wasted $675. Who would naturalize under those circumstances? Is a US Citizen living outside the US (long term) required to pay US income taxes on income earned in OTHER countries?
Click to expand...

Yes, it is true. See http://www.irs.ustreas.gov/businesses/small/international/article/0,,id=97324,00.html
"If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside".

In practice if a U.S. citizen resides abroad, there are often tax treaties between the U.S. and other countries which explicitly exempt people from double taxation. Even if a tax treaty is not available, taxes paid in a foreign country can usually be used towards a foreign tax credit, which reduces (sometimes to zero) the U.S. tax liability of a U.S. citizen residing abroad.
 
It is true. Citizens of a country are subject to laws of that country and USA is not an exception. a Permanent resident is different, once you give up you rpermanent residency of a country, you will have not anything to do with that country
any more.

But you still have a choice after you get your US citizenship: you can renoounce your us citizenship to avoid tax obligation
if you plan to live in other countries permanently anymore
 
But you can always file for Foreign Income tax exclusion form 2555. The 2009 limit was 91.4K. I suggest talking to an experienced tax lawyer as there are implications if you have capital gains, rental income, etc. Good luck!
 
spicard29 said:
"If a permanent resident leaves the country and stops being a US resident for tax purposes, she doesn’t need to pay any US taxes at all. A US citizen, by contrast, needs to pay US taxes on her global income for her entire life, no matter where she lives."

This was on someone's blog, so I'm not sure it's a true statement. I REALLY hope it's not true, actually. If it is, I just wasted $675. Who would naturalize under those circumstances? Is a US Citizen living outside the US (long term) required to pay US income taxes on income earned in OTHER countries?
Click to expand...

Yes, it is correct, but it is a very complex topic. Depending on your situation, you might want to re-check all the facts. Some extremes:

#1. Even if you gave up GC, it is not so simple. They passed a law few years back that if you had GC for 8 years, you still need to pay expatriation tax. And the years are not counted like they do for N400 - even if you stayed in US for 1 day, it is counted as a year for tax purposes.
#2. Only active work income can be excluded under foreign earned income exclusion - capital gains, dividends, interest - can not be.
#3. They were working on some law which will make you pay the "normal" income tax rate once the exclusion is exhausted. Let's say your income is 150. Excluding 90 does not take you to 60 - but makes you pay tax on income from 90 through 150 - at those rates.

Again, these are simplistic explanations, and whether they are all confirmed to be laws or not, I am not sure. So check your personal situation, talk to a good CPA if needed.
 
sanjoseaug20 said:
#1. Even if you gave up GC, it is not so simple. They passed a law few years back that if you had GC for 8 years, you still need to pay expatriation tax. And the years are not counted like they do for N400 - even if you stayed in US for 1 day, it is counted as a year for tax purposes.
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How does USCIS enforce is a PRs abandon GC and leave USA for good and take all his asstes including 401K/IRA
out of USA?

The only leverage I see IRS has is try to stop giving this person Social securioty benefits
 
sanjoseaug20 said:
#1. Even if you gave up GC, it is not so simple. They passed a law few years back that if you had GC for 8 years, you still need to pay expatriation tax.
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But that is applicable only to wealthy individuals ... you'd have to be earning hundreds of thousands of dollars before you left the US, or have a net worth over $2 million. And the tax obligations for do not continue for the rest of your life after you leave the US and give up your GC.
 
WBH said:
How does USCIS enforce is a PRs abandon GC and leave USA for good and take all his asstes including 401K/IRA
out of USA?

The only leverage I see IRS has is try to stop giving this person Social securioty benefits
Click to expand...
They can get DOS to deny you a visa to visit, or arrest you when you do visit.

They probably expect that the individuals rich enough to be liable for the expatriation tax would have some assets that cannot be easily sold without sacrificing a lot of future income or taking a big loss, like a business or commercial real estate.
 
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There is a dual taxation avoidance agreement (DTAA) between India and the US that allows taxes paid to the Indian government to be claimed against the taxes due in the United States. This provision, plus the first 90k or so being free from US tax for US citizens residing abroad, provides some protection. Similar DTAAs exist for many other countries as well.
 
WBH said:
It is true. Citizens of a country are subject to laws of that country and USA is not an exception.
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Actually, the U.S. tax laws are pretty unusual in this regard. I don't know of any other country which taxes the world-wide income of its citizens, even if they earn this income outside of their home country.
E.g. I am a citizen of both Russia and the U.S.
My U.S.-earned income is not taxable in Russia and I am not obligated to file a Russian tax return.
 
baikal3 said:
Actually, the U.S. tax laws are pretty unusual in this regard. I don't know of any other country which taxes the world-wide income of its citizens, even if they earn this income outside of their home country.
E.g. I am a citizen of both Russia and the U.S.
My U.S.-earned income is not taxable in Russia and I am not obligated to file a Russian tax return.
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That is only because laws are different. If Russia decide today to tax Russian citizens, then you have to pay it
unless you give up Russian citizenship or never go to Russia so they can not do anything. But Russia can not
make a law require citizens of France living in France to pay taxes to Russia. France will go to war with Russia if Russia pass such law
 
Canadian with Green Card

Hi, I found this link that might be useful for someone.

expatriatetaxservices.com/articles/show.aspx?id=40

the question I have is that I have been a permanent resident or resident alien for over 5 years now, but for tax purposes (filed US tax returns) I have been in the US for over 15 years now as before my green card I was on a TN visa and a H1B visa. I know that TN and H1 visas are not permanent visas, but I gather filing US tax returns instead of Canadian tax returns makes me a US resident for tax purposes. So does that mean on the GC test, I have already "resided" 8 of the 15 years prior to any date that if I would give up my GC for this "covered expatriate" tax law??
 
WBH said:
That is only because laws are different. If Russia decide today to tax Russian citizens, then you have to pay it
unless you give up Russian citizenship or never go to Russia so they can not do anything. But Russia can not
make a law require citizens of France living in France to pay taxes to Russia. France will go to war with Russia if Russia pass such law
Click to expand...

Napoleon already tried that and it did not work very well ;)
 
mg123man said:
Hi, I found this link that might be useful for someone.

expatriatetaxservices.com/articles/show.aspx?id=40

the question I have is that I have been a permanent resident or resident alien for over 5 years now, but for tax purposes (filed US tax returns) I have been in the US for over 15 years now as before my green card I was on a TN visa and a H1B visa. I know that TN and H1 visas are not permanent visas, but I gather filing US tax returns instead of Canadian tax returns makes me a US resident for tax purposes. So does that mean on the GC test, I have already "resided" 8 of the 15 years prior to any date that if I would give up my GC for this "covered expatriate" tax law??
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The 8 years only refers to time spent as a permanent resident of the US; the time before GC approval doesn't count for this purpose, even if you were a US resident for tax purposes before having a GC.
 
thanks Jackolantern

Thanks Jackolantern, the article was not clear on that fact. I also was did some more digging and you are right.
 
@cafeconleche

... I don't think the IRS would go after a normal individual if this individual is abroad (just my guess). They tried that with a guy in Switzerland and failed (Marc Rich - no joke here, that's his name) he owned a company (Glencore) and had a few bucks (or a few Million bucks) in the bank.

However - If you live abroad and decide not to file consider this: Money owed to the IRS has no statute of limitation ! This means if they give you a fine it will accrue interest. I hope you understand the compound effect of interest. I don't know what interest they charge. But as rule of thumb: If it is 7.5%, your payments to the IRS double over 10 years, quadruple over 20 years ....

And unlike March Rich - Do you think that the President would pardon you like Clinton did for March Rich ? Good for you if you have that kind of a network ;)
 
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Hehe, Marc Rich. I remember that dope. I don't intend (well, I have no hope) of making more than, say, 40k at best for the next couple of years at least, so I will be covered by tax treaties (this will probably be in the Netherlands). So, if I don't file, no worries?
 
cafeconleche said:
Hehe, Marc Rich. I remember that dope. I don't intend (well, I have no hope) of making more than, say, 40k at best for the next couple of years at least, so I will be covered by tax treaties (this will probably be in the Netherlands). So, if I don't file, no worries?
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No worries .....until you move back to the US. Then the system red-flags you for not filing in the past X years, and you're more likely to be audited on future tax returns.

Even if treaties and exemptions bring your US tax bill to zero, you're still supposed to file the tax returns when living abroad.
 
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